Posting Date: March 26, 2011

As you all are aware, yesterday is when THQ's highly anticipated tactical shooter "HOMEFRONT" game was released for the PS3 and XBOX 360. News sites are reporting that over 4 million copies of the game have been sold so far, making the game a highly successful venture for the company and opening up future growth with this new intellectual property.

However, last year in November of 2010, THQ CEO Brian Farrell told the BMO Capital Markets conference that, in a nutshell, video games need to be cheaper. Here are some old posts from 5 months ago as a helpful reminder: Eurogamer, Gamasutra and VG247.

THQ planned on an "alternative business model for retail games" and instead wanted to launch at lower price points and selling more incremental content later. "That's where the industry is headed", said Brian Farrell. Launching at $60 for example was considered too expensive and "keeping people out", however a mass market-friendly price of $40 would do much better.

So how much did Homefront retail for? That's right: $59.99 USD.

I still don't know what the PC version will cost (since it was pushed back as you're aware) but we should know within the next few months.

tl;dr; THQ said games are too expensive, then sold a game that was too expensive.

In other news, THQ is planning a "United Kingdom" expansion pack which will be "released sometime next year." The official title of the expansion pack has not been decided as of yet. THQ representatives also hinted at a Zombie DLC planned sometime within the next few years (possibily influenced due to the massive success of AMC's "The Walking Dead" - and I hear there's also another new zombie-based TV series in development too!).

And finally, it's estimated that Blizzard's Cataclysm expansion pack sold a "record number" of just under 3 million sales within the first month, making Cataclysm "the most successful fantasy expansion pack in 2010" according to Blizzard's latest news release.

Anyhow.. I'm heading back into Cataclysm. I heard there's a major nerf coming down the pipe that's affecting most of the classes. It was fun while it latest.. =[

This is sort of a continuation of my last post, I wanted to further examine Blizzard's "repeated history of abuse".

It was originally a very long post, so I'm trying to break it down into components for easier reading and because I go off on tangents. =]

So..

Other than unintended changes (bugs) that have had negative effects on customers, how about intentional changes?

A profitable business operates like a professional con artist: they'll take your money and you'll thank them for it. Or, they'll cheat you out of money but you'll never know that it even happened. The only difference between the two is that "marks" are called "customers" and the scams are actually "business strategies".

Blizzard has done a lot of cool things from a customer perspective (like charitable donations), but how about examining those critically and from a business perspective? (After all, I'm pretty critical.)

Race Changes

Let's ignore the fact that Blizzard charges $25 for a simple database record change. (It's like charging $800 for pouring windshield wiper fluid while claiming that the service is in fact a highly complex procedure that requires dismantling of your vehicle.)

When Race Changes were first introduced, Will of the Forsaken was the most powerful PVP ability in the game. Many players switched races to Undead purely for the WOTF ability. However, Blizzard secretly nerfed the ability on that same day. =] Players who switched to Undead had to pay another $25 to switch to another race with the next overpowered racial trait.

What excellent timing. They had months and months to make the change (it was planned after all), but chose to make the change when it would be most financially beneficial to the company. =]

More Paid Faction/Race Changes

Blizzard recently announced that they will be allowed Paid Faction/Race changes on the first day of Cataclysm. This was unexpected, but welcomed, by many players.

What this tells me though, is that they're desperate to ensure highly profitable numbers during that quarter. They could have just relied on Cataclysm sales numbers alone, but with all of the hype and promises made to investors they're desperate to ensure that strong revenue figures are reflected. There are also other services/features being introduced in the same quarter (coincidentally) as the Cataclysm release, and you'll probably see a lot of other new services, class buffs, and other stuff in the following quarter to keep revenue figures high.

All of these changes within the same quarter tell me that they're worried though.

Digital Sales

This also relates to the item above. Digital Sales will be available for the first time when Cataclysm is released. This is very convenient for customers, but how about from Blizzard's perspective?

- Blizzard is cutting out the middle-man, so that they receive pure profit now.
- Digital Sales do not include physical boxes, so Blizzard has eliminated the huge costs associated with shipping, packaging, and the physical boxes/contents themselves (ie, no need to manufacture manuals, DVDs, boxes, etc.)
- However, they're still charging the same cost as the physical box! (The best part!)

This new service will dramatically increase revenue figures for the quarter and it was very well timed (it could have been implemented at any time within the past couple years.) =]

Also with the introduction of Digital Sales, several research groups will no longer have access to accurate sales numbers to determine subscriber counts or revenue figures. For obvious reasons, Blizzard doesn't want to announce player subscription counts (like when they lost 5-6 million players in China) and cause investor panic. But with this "new service for the customers", they can now keep all sales information secretly hidden within the company. Very clever indeed, and another example of their dedication to reputation management. =]

You're A Good Person If You Donate To Charity

Blizzard also recently announced that the pet store will have "Lil' Ragnaros" and the "Moonkin Hatchling" pets available during the same quarter as the Cataclysm release (yay, more revenue for the quarter.)

Not only that, but 50% of the proceeds goto charity.

There are a few things to keep in mind here:

- The graphics model for these virtual pets probably cost like $50 to make (that's including the $0.05 worth of electricity used by the development station) but Blizzard will be re-selling this virtual item in the hundreds of thousands. It won't cost Blizzard anything to donate 100% of the profits (donating 99.99% of the proceeds would still cover all of their associated expenses) but they need that massive profit for their quarterly results. Was this truly altruism or was it business? Based on history, I'm thinking the latter.
- It's like selling bottles of air (except they don't have to pay for the bottles).
- Charitable Donations = Tax Cuts + Public Relations + Reputation Management + Good Feelings For All
- As human beings, we're all very selfish. Everything we do is for actually for a selfish purpose when you think about it (donating to charity makes you feel good about yourself for example). However, we're very good at pigeonholing our selfish acts into different levels. Buying a pet for vanity purposes is "bad" and some will do it.. BUT if the proceeds are going to charity, then that will JUSTIFY the purchase and you can feel good about yourself. This is a common business strategy actually.. manipulation of our feelings is just proper marketing strategy, so don't take it personally. If you ever wanted to sell something that makes a person look vain, just tell them you'll donate some of the proceeds to charity - it works wonders.

Anyhow.. yeah yeah, I'm a jerk for mentioning all of this. "Blizzard could have just kept all of the profits themselves you know!!" is what the Blizzard fanboys will probably say. =]

Buffing During Sales Periods and De-Buffing After

The Death Knight was originally extremely overpowered. Everyone was lead to believe that because they were a "Hero Class" that they would remain overpowered with reason. It was kept overpowered during the highest sales period of the year, and then they "suddenly" nerfed the class to hell approx 3-4 months after (when the big sales period ended.) Coincidental? The DK class sure did bring in a lot of new players via word-of-mouth and friends inviting friends due to their "special abilities". =]

The DK class was tested for years internally, beta testing, and PTR testing - but Blizzard kept them OP until after sales dwindled. I'm predicting the same thing with Cataclysm - ridiculously easy dungeons and item/gear collection, overpowered abilities and classes, and then there will be a massive nerf followed by the reset of items or "introduction of new gear" the replaces all existing gear. It will probably happen in March/April. You know.. because all of the awesome changes (that have been tested for years mind you) were in fact "accidental" or "unintentional".

Promises Promises

When World of Warcraft was first released, I was very hesitant about paying $15 per month for their service. However, Blizzard reassured me that they had major content upgrades planned to be released every month. That was the big selling point for me.. the promise of major content updates on a month by month basis.

It never happened.. they later changed the idea into "Expansion Packs" so that they could reap additional profit on top of the existing monthly subscription payments. What a huge disappointment. They also removed all forum posts that had mentioned monthly "major content" patches, if I had known I would have taken screenshots.

In 2008, Mike Morhaime revised that statement and changed it to yearly expansion packs. That was the plan anyways.

Over the years though, Blizzard has made a lot of changes to their public announcement process and they are much more careful about what they say now. But even then, they still make announcements or hints of upcoming features and services that never materialize. They lead us to believe something big is coming, so that we keep playing, but word their announcements so that they can be interpreted many different ways. (I've talked about this sort of thing in the past.. it's all about wording.)

You can also expect Blizzard to make regular changes to their forum system (ie, "clean up operations"), which is also extremely beneficial to their Reputation Management process. Whenever a new expansion pack comes out or there are forum changes, you can expect forum posts to be deleted. Typically, negative forum posts (ie, ones that cast Blizzard in a bad light) are removed right away - but not all moderators can catch them. So "starting fresh" on the forum system is more like deleting evidence (ie, the posts that weren't caught or promises and comments made no longer exist and cannot be linked to anymore) even though forum posts can easily be migrated over to new systems.

Class "Balancing" Acts

Ever notice that every class is given the opportunity to be overpowered for a month or two, and then it switches to another class? That might not be a coincidence or unintended. It's almost as if every class goes through a rotation, buffed intentionally, and then nerfed later on purpose (as though it was all planned all along.)

After 6 years, the classes still haven't been balanced properly even though they have been tested by millions of players world wide. The balance issues are just a very small finite number of permutations and variations in class gameplay compared to the variations in gear (and raid/NPC mechanics) which is balanced. I think this is just another game Blizzard plays, and I'm sure others believe it as well.

Sure, sometimes there are some unintentional bugs.. it happens. But the constant balancing act encourages players to switch classes, level them up, and then switch to another class. More time is spent playing the game, and therefore more revenue for Blizzard. Taking subscriptions numbers into account and game size, I've never encountered any other game or MMORPG that has gone through as many balancing acts as WoW. If I ever get a chance, I might look into this in more detail.. but right now, there are just too many coincidences in opposition of the claim that class balance is a result of unintended effects.

Realm Character Limitations

Everyone has always been restricted to 10 characters per realm. It's very easy to increase this limitation, as it's only a database entry and it applies no extra load on the servers. There's nothing keeping Blizzard from increasing this number.. who knows, maybe additional character slots will become a "Paid Service". But because of this restriction, once players are full they are forced to delete characters and start from scratch or create new characters on other realms and start from nothing.

I'm okay with a limitation of 50 total characters across all realms, but I sure would like to create a Worgen or Goblin on my two realms that are full. It's a very heavy investment of time to create a new character, level them up, and start collecting gold again from zero, but it's a way Blizzard can keep players addicted and busy wasting time. It's also a way for force players to purchase Race changes if they want to play the new races. Time-wasting activities (such as pets, achievements, and archaeology) are actually an indirect method of increasing revenue when you consider the domino effect.

Minor "Features"

These are the small tweaks here and there and increase the amount of time playing the game at the excuse of fixing "Lore" or improving the game-play experience.

For example,

- In Cataclysm, Blizzard will be removing portals so that travel time is increased (no changes to mount speeds however - how about a 400% mount that anyone can get?).
- Players will need to visit dungeons first before they can queue for them.
- Auction posts and cancellations now require confirmation (it does not prevent automated auctions at all.. that's why they're called "automated"), increasing the amount of time on AH dramatically.
- Blizzard always lowers the XP requirements before each expansion pack, and you can expect the same with Cataclysm. This is so that players can level more quickly to 70 or 80, are encouraged to level more characters, but they get "stuck" at 80 when they get hit with all of the time intensive activities that shouldn't be there.
- Big changes to racial traits (for other races) will occur after everyone gets used to Goblin/Worgens, encouraging them to swap characters again and spend more time playing.
- And don't get me started on the queue times for Battleground and Dungeons (that were originally promoted as time saving, but had the opposite effect.)

You've probably already read this blog article entitled "Stop Supporting Broken Games". It's in regards to Bethesda's pattern of releasing games that are incomplete or crippled with bugs.

As a gamer you should expect a completed game when you purchase it. A final, working product is not something to be created with patching. There is no excuse for this pattern of disrespect to gamers.

I realize that Bethesda is not the sole perpetrator of these kinds of acts. But Bethesda also shows a repeated history of abuse with no plans as far as I can tell to change the course of their development process. They stand as a testament to the broken game release -> patch -> repatch cycle.

I agree with it and it's something that I personally do myself. I never buy a game on the first day and I will usually wait until the first or second major patch before I consider purchasing it. The trick is to ignore the hype (of new releases) and build up a game queue that you still need to play first before moving onto something new. There are many players doing this already, but like the blog said - there should be a lot more. Enough to the point where it forces game developers to strengthen their Quality Assurance process and ensure that "complete games" are released. It will never happen (consumers are impulsive and businesses are cheap), but it's a nice idea.

I've seen this "repeated history of abuse" before though and it's even worse with another big-name corporation. =]

When I was in the World of Warcraft closed beta, the bugs and issues were terrible. Constant crashes, application hangs (requiring frequent reboots), server instability and resets, server lag and latency problems, screen tearing and video bugs like what you've seen in FNV, and incompatibilities with many system builds, operating systems, video/audio cards. The game was unplayable by many.. that is unless they were technically skilled and had a few different computer systems available. The game was awesome but the bugs were absolutely crippling. I believed that Blizzard would fix the worst of the bugs before the RETAIL release, but they didn't.. they released WoW incomplete and still with the bugs that were present in the beta for MONTHS.

So, right now there are players complaining about Bethesda bugs that take a week (or a couple weeks) to fix. But imagine if critical issues and crippling bugs took MONTHS and even YEARS to fix? What if each "patch" would fix some small issues, but cause even MORE problems? Blizzard did it and they still do it.

To make matters even worse, Blizzard's online games are PERMANENT. With single-player games, there are issues that you can fix yourself, methods to continue progress that might have been lost, unofficial patches, or temporary workarounds available. But with Blizzard's online games, you can't fix the issues yourself and any changes made to your account are permanent.

Since time is considered a commodity, bugs in online games are significantly more damaging.

In 2009, Blizzard announced that they were tracking approx. 180,000 bugs in WoW. Keep in mind that these were the "official" bugs on record that they were troubleshooting. Their bug tracker would have a different definition and scope then that of other companies.. unofficially, there are probably 10 times that number but it would all depend on what you classify as a "bug".

So right now FNV has one serious graphics related bug, game saving issues, and quest related bugs. Blizzard games have also had those same issues (not specifically "game saving", but they've had WoW/Diablo character resets that could not be recovered) but they have ALSO:

- melted video cards and destroyed gaming PCs (that severe bug was actually discovered during February beta testing and remained in the retail) which took 7 months for a non-Blizzard workaround to be released
- allowed an insane DPS exploit (Global Cooldown Hack) for 6 years
- WoW & SC2 corrupted video (1-2 years for WoW, 1 month for SC2)
- random PC resets & application hangs for 2 years
- random server crashes, severe client drops (to the point where a user couldn't play for weeks at a time and there was no time reimbursement), latency issues for 2 years
- unfair PVP due to mass cheating and exploitation
- WoW duping bugs that destroyed economies for 7 months (and then there are bots = 6 years of damage)
- the infamous "Corrupted Blood" incident which resulted in several server restarts, populations being wiped out, Blizzard quarantines, players unable to play (1 month to fix)-
- the similar WOTLK zombie plague (1 week to fix - was it really intended?)

.. the list just goes on and on. Most recently, there was the "cogwheel issue", BG/Dungeon crashes, stuck on loading screens, broken Glyphs, valuable recipes randomly deleted, the Hallows Eve event issue, and players who join an in-progress BG do not receive honor or the daily reward (this has been going on for a month now). And there are also INTENDED changes that have completely ruined a player's gameplay experience and/or increased the amount of time they play the game.

It just never ends.. with each new patch comes brand new issues and sometimes very severe bugs.

A Blizzard fanboy will be quick to point out the EULA to me however. The excuse is that we're not really entitled to anything, we're not a special snowflake, Blizzard can do whatever they want to our PC or our time and they're not responsible for what happens to our PCs. Does that make it alright though? What does it say about a company that makes it clear in their contract that they don't stand by their products or their services?

I do what I can though. When there are major game-breaking bugs, I simply cancel my subscription and wait until things improve before I continue playing. Blizzard never knows this though. I don't think they would really care either.. history has shown that Blizzard takes their time in fixing game-breaking issues or severe bugs. That's the beauty of a monthly subscription based model.. they still have my money even though I only played for the first week before giving up and they know I'll be back.

With everything Blizzard has been bragging about over the past several months (e.g. successful WOTLK China launch, largest ever "12 million subscribers", huge number of people returning to WoW in anticipation of Cataclysm, etc.) you would expect this quarter's World of Warcraft earnings to be highly successful.

I think you'll be shocked by the results:

World of Warcraft revenues were $289 million for the 3rd quarter.

That's the exact same amount of revenue as their previous quarter.

In 2009 during the same quarter, they made $306 million (even though they have much larger subscription base in 2010).

During the 2nd Quarter (Ending June 30 2010), they released the Celestial Steed, the RAF Flying Mount, and introduced the Remote/Mobile Auction House service at the end of the quarter (so revenues for that new service actually carried over to the 3rd quarter.)

To help put things into perspective: even with ALL OF THAT FANFARE, the China launch, the "huge climb" of subscriptions, and Cataclysm coming soon, they still only made the same amount of revenue that they did during a quarter when absolutely NOTHING happened.

This is bad news indeed.

It gets much worse though. According to ActiBlizzion, they raked in $745 million in revenue with only $51 million in actual profit. That's a huge amount of expenses that cut deep into their revenue. (Although, they put a very positive spin on their Q3 results.)

World of Warcraft generated $289 million in revenue but their own expenses (staff costs, server operating costs, etc. according to Blizzard) were only about $13 million for that quarter.

So, WoW generated over $270 million in profit - but the Activision side of the family laid a gigantic smackdown on their overall profit, They must have some pretty insane expenses and I wonder what the investors feel about this? Look at it this way: if there was no "Activision", that $51 million profit would have been over $270 million instead.

World of Warcraft, by the way, is ActiBlizzion's flagship product and amounts to almost 40% of the entire company's revenue stream. You can see that Vivendi is incredibly dependent on Blizzard, but without WoW there would be a massive deficit. (See "What Vivendi Fears Most".)

* Addendum: Back in March 2010, Kotaku had an interesting article.. Activision's reports pointed out that World of Warcraft amounted to 98% of Blizzard's revenue which was up from the previous two years (97%). WoW also accounted for ~70% of Activision's net revenue. 'nuff said.

During the Q3 earnings presentation, Activision also kept bringing up Starcraft 2 and how successful the launch was. They mentioned everything else I said they would, but I was surprised they kept talking about Starcraft 2. Details had already been announced during the previous quarter and was talked about at great length at the time. But, I didn't think they were desperate enough to bring it up again ("SC2 launch! SC2 launch everybody!".. you know, even though the information was released already last quarter.)

Starcraft 2 sales figures were also very disappointing. They only sold 3 million units to date. By comparison, Red Dead Redemption (a more recent release) sold 5 million units in less than a month and it was considered a moderate success. Using that same time frame as a basis of comparison, the original Starcraft sold almost 2.5 million units (SC1 launched in 1998 plus BW units which launched 8 months later during that same year). Tiberian Sun (1999) sold 3 million units by year end, and Red Alert (1996) sold 1.5 million in under 4 weeks - and another million more over the next few months.

Keep in mind that those sales were from over a decade ago, and they're comparable to Starcraft 2 sales as they are now!

Worldwide, the video game industry revenues in 2007 were about $41.9 billion, in 2004 they were $25.4 billion, and in 1994 they were $7 billion. So, since 2001 video game revenues have almost tripled in size (2.7x actually), and even with that explosive growth, SC2 still only sold the same amount as Tiberian Sun from over 10 years ago (within the same timeframe, the only difference is that SC2 sold more on opening day).

"Professional Analysts" had initially predicated that SC2 sales would be significantly higher: 7 million sales within the first 5 months, 4 million within 3 months, 6.5 million within 5 months, 5 million in 5 months, and finally 6 million in 5 months. Apparently, Cataclysm is also supposed to sell 6 million copies on the first day, according to one of the analysts.

Keep in mind that these "professional analysts" are the best and brightest in this field. Man, were they off.

So anyhow.. overall the Q3 conference turned out just as depressing as Blizzcon 2010 - no news, no major announcements, just very boring and disappointing. If I was a major investor in the company, I would be very angry and asking a lot of questions.

* Quick Update:

One of the readers didn't understand the comparison of Blizzard's "3 million in the first month", compared to analyst predictions of "7 million sales within 5 months", etc. If you read back over past posts, this makes more sense as I've talked trends and sales figures.

What happens is that the largest amount of sales occur on the first day. And then the numbers steadily drop each follow day. SC2 for example sold 1.5M on the first day, on the next day they sold half that amount, and then 50% of that figure, and so on.

Almost all game releases follow the same trend, here's an example:

5 million during the first week (largest amount on the opening day)
800,000 during the second week
600,000 during the third week
400,000 during the fourth week
200,000 during the fifth week
150,000 during the sixth week
100,000.. 70,000.. 50,000 etc.

As of right now (4 months after release), Starcraft 2 is at about 3 million units sold. With only 1 month to go, there's a very unlikely chance that SC2 will suddenly sell 4 million units within the next few weeks. I hope that clarifies.